Refusing "Stimulus" Funds: Then and Now

With the flood of spending coming from the stimulus bill, several governors have held firm to principle. They don't want to take the federal money if federal strings are attached. In particular, they are reluctant to take, for example, the new money for Head Start and child care subsidies if it means the states have to pick up the programs when the stimulus money runs out. As Governor Mark Sanford of South Carolina says,"There's no way politically we're going to be able to push people out of the program in two years when the federal money runs out." In a similar manner, states will receive $80 billion in Medicaid funds but these funds run dry in 2011. Will the states have to raise taxes on its citizens for Medicaid after 2011?

This question of whether or not to take federal funds also perplexed some of the governors in the 1930s during the massive federal spending of the Hoover and Roosevelt presidencies. For example, in 1932, under the Emergency Relief and Construction Act, welfare was first made a federal function. Before that, states and private charities provided one on one relief service for hungry and jobless people in their communities. With the promise of federal funds, the governor of Illinois (and the mayor of Chicago) declared urgent and dramatic need. In doing so,they secured over $55 million of this fund--more than New York, California, and Texas combined.

Interestingly, Massachusetts, a state almost comparable to Illinois in population, neither asked for nor received any of the federal money. Boston and many other parts of the state had serious need for relief, but Governor Joseph Ely and other state officials still believed that relief should be a local and state function. They constantly worked to raise local money for local needs. A statewide unemployment drive, for example, raised over $3 million. The Boston Civic Symphony repeatedly gave concerts to benefit the jobless. Boston College and Holy Cross played an exhibition football game for charity in 1931. A benefit wrestling match at the Boston Garden supplied %45,000 for local needs. City officials helped Mayor James M. Curley of Boston raise a remarkable $2.5 million from city employees; even the city's schooteachers donated 2 percent of their salaries for six months in 1931 to feed the poor. Historian Charles Trout, who studied Boston's maazing efforts to meet local needs, wrote that"no major city assisted so high a percentage of its jobless" as Boston did in the early 1930s.

Five other states, mostly in New England, joined Massachusetts. They raised money locally and took none of the $300 million offered under the emergency act. In effect, what that meant was that Massachusetts not only paid for all of its own relief, but for part of Illinois's as well. That is a critical point. Massachusetts citizens, through their payment of federal taxes, were contributing to relief payments for Illinois. Then they were paying state taxes and sometimes making charitable donations to relive the hungry and jobless in Massachusetts.

Governor Joseoh Ely of Massachusetts asserted his independence from federal aid."Whatever the justification for relief," Ely said, the fact remains that the way in which it has been used makes it the greatest political asset on the practical side of party politics ever held by any administration." In 1934, Massachusetts succumbed to pressures to take federal funds. Governor Ely retired and James Curley won election to replace him. Under Governor Curley, Massachusetts claimed massive federal need and received over $100 million in federal aid for welfare by 1935. Here was the new game from Washington: Which states could argue most convincingly for need and attract more federal dollars than they paid in?

One of the many dangers of the stimulus bill is that it will remove incentives for states to solve problems they created and encourage states to look to Washington to try to secure more money than they pay in taxes. This is not responsible constitutional government, but grab bag politics and democracy at its worst.